Fixed Rate Loan | What is it actually?

A fixed-rate loan, what is it actually? Fixed-rate loans can only be found in the higher price ranges of the loan calculator. Nobody has money to give away. There is no better or worse money. The value of money is always the same. No matter which provider it comes from or how high the interest rate is. So the question arises, why should someone pay higher interest on such a loan?

Fixed-rate loan – an additional expense?

Fixed-rate loan - an additional expense?

Loans with a fixed interest rate are loans that are granted at a fixed interest rate. The interest rate fixing period for consumer loans is usually the term of the entire loan contract. The borrower uses a loan that works with constant interest rates throughout the term. Market fluctuations, such as those that occur again and again due to changes in the key interest rates, remain at the risk of the lender.

Another important aspect to choose the fixed-rate loan is personal creditworthiness. It is different for every person. For each loan that is not advertised at a fixed rate, the borrower’s creditworthiness is used as the basis for the interest rates. The interest advertised in advertising corresponds to a specific sample offer of a group of people with the best credit rating. It is not uncommon for a person with a normal or poor credit rating to use a fixed interest rate offer cheaper than the cheapest credit-related loan.

Use fixed-rate offers

Use fixed-rate offers

For loan amounts that are on a smaller scale, interest is only one aspect when looking for a loan. It is not easy to determine the actual creditworthiness if the cheapest interest rate is to be exhausted. For the final credit check, it is often necessary to provide significantly more evidence than with fixed-rate offers. A credit-independent loan at a fixed interest rate is approved without a separate credit check. Payroll, a good Credit Bureau score and clean Credit Bureau information are sufficient.

With small loan amounts and short terms, the savings potential from cheaper interest rates, provided that they are approved, is negligible. In many cases, it can hardly be said that there is a real saving effect. If the whole thing is then related to the possible effort, it is simply not worth it.

Loans where the fixed rate offer makes sense

Loans where the fixed rate offer makes sense

The department store loan is the best-known loan with a fixed interest rate that is independent of creditworthiness. It is granted in the simplified credit approval process and usually only has a term of 3 to a maximum of 12 months. The situation is similar with many small loans from the Internet. Again, it is the small loan amounts and limited terms that make a simplified credit check useful.

For larger purchases, such as buying a used car, the fixed-rate loan can also be useful. A loan in which the vehicle letter serves as property security can usually be obtained with low interest rates. Securing the currently historically favorable interest rate over the term is only possible with a fixed-rate loan.

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